2016 (8) TMI 461 - AT - Income Tax

Addition u/s 68 - undisclosed bank account - Held that - Admittedly, the bank account maintained with HDFC Bank Ltd., which was not disclosed by the assessee in the impugned assessment year, was also not disclosed by the assessee in the immediately preceding assessment year. During the course of assessment proceedings in the preceding assessment year the AO had confronted the same to the assessee and the assessee had prepared a profit and loss account on the basis of those deposits in the said bank account and had disclosed net profit of ₹ 2,99,273/-. The AO had determined the income at ₹ 5,21,990/- on account of such bank deposits of ₹ 48,39,641/- by making disallowance of ₹ 2,22,717/- being 5% of the purchases. Therefore, when the very same bank account was not disclosed for this year also, we do not find any reason as to why the AO has taxed the entire deposit of ₹ 75,44,655/- especially when the bank account contains both debit entries and credit entries. Therefore, we are of the considered opinion that those debit entries cannot be ignored altogether. Since the Ld.CIT(A) after considering the totality of the facts of the case has sustained addition of ₹ 15,30,602/- which is the peak credit in the bank account as on 29-12-2009, therefore, we do not find any infirmity in the order of CIT(A)

Summary

Issues:
Unexplained cash credits in undisclosed bank account, Application of section 68 of the Income Tax Act, Principle of res judicata in tax proceedings.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune concerned the unexplained cash credits in an undisclosed bank account for Assessment Year 2010-11. The assessee, a partner in two firms, had a savings bank account with substantial deposits not disclosed to the tax authorities. The Assessing Officer (AO) questioned the source of these deposits, suspecting unaccounted profits. Despite the assessee's explanation of the deposits as sale proceeds from a timber and wood trading business, the AO invoked section 68 and added the entire deposit amount to the assessee's income.

In the appeal, the CIT(A) considered the previous year's assessment where a similar undisclosed bank account was accepted with a partial disallowance. The CIT(A) restricted the addition to the peak credit amount in the bank account, citing lack of documentary evidence for the claimed sale proceeds. The Revenue challenged this decision, arguing for taxing the entire undisclosed deposits.

The Tribunal upheld the CIT(A)'s decision, noting the lack of disclosure in consecutive years and the AO's previous treatment of similar deposits. Considering both debit and credit entries in the bank account, the Tribunal found no justification for taxing the entire deposit amount. Therefore, the addition was limited to the peak credit amount, in line with the CIT(A)'s order. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision based on the totality of facts and consistent treatment of the undisclosed bank account across assessments.

The judgment highlighted the importance of disclosure and consistency in tax proceedings, emphasizing the need for substantiated explanations for unexplained cash credits. The application of section 68 and the principle of res judicata in tax matters were crucial aspects considered in resolving the issues raised in the appeal.